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Sunday, December 4, 2011

Raquel Fernandez the Cynic

Economists essentially have a sophisticated lack of understanding of economics, especially macroeconomics. I know it sounds ridiculous. But the reason why I tell people they should study economics is not so they’ll know something at the end—because I don’t think we know much—but because we’re good at thinking. Economics teaches you to think things through. What you see a lot of times in economics is disdain for other's lack of thinking. You have to think about the ramifications of policies in the short run, the medium run, and the long run. Economists think they’re good at doing that, but they’re good at doing that in the sense that they can write down a model that will help them think about it—not in terms of empirically knowing what the answers are. And we have gotten so enamored of thinking things through that the fact that we don’t know anything needs to bother us more. So, yes, it’s true that the average guy on the street doesn’t understand economics, and it’s also true that we don’t understand economics. We just have a more sophisticated lack of understanding than the guy on the street

Fernandez knows something, about which she is quite certain. As economists, we really don't know anything at all. Apparently we are good at thinking, but it's just fooling around - nothing more serious than video games.

Fernandez is frustrated:

The methodology of economics is so strong that we have had a large impact on many fields, from political science to sociology and even neuroscience. It’s been a very successful paradigm in that what economics does very well is think rigorously. But sometimes that’s not been very fruitful in the sense that there are certain questions that you can’t ask because you don’t know how to model them.

Ah, those pesky models, getting in the way of fruitful science.

Fernandez thinks we're not scientists:

... as “scientists” we often don’t have much to say. I don’t think we are scientists. I think we’re more like doctors in the sense that we do research, but in the end there’s a patient, and you have to say, given one’s knowledge, what’s the best way to treat the patient?

Well, when I think about my doctor, what she does looks to me like applied science. She wants to do some tests on me. I ask her some questions about it. She cites scientific evidence from published research. When I talk to Jim Bullard I get the same vibes. He's doing applied science. He knows what's in the journals. He talks to his staff and other economists, and uses frontier knowledge to argue for good policy choices. That frontier knowledge is based on theory, i.e. models, and empirical evidence. Science, basically.

Fernandez thinks we don't love Paul Krugman enough:

But the people who go and give advice usually end up with a very bad rap in economics. I am amazed at how much hatred—and I will say hatred—Paul Krugman evokes from some fellow economists. But one of the reasons for this is that he says things for which there is not “scientific” support and which go against what these people believe is "good" economics.

She's confused here. Krugman does not get a bad rap because he chooses to give advice. He gets a bad rap because some people, me included, think he is giving bad advice. We don't hate the man, we just disagree with him. And yes, this has a lot to do with science (no scare quotes).

Just because economists don't know much about a lot of things is hardily a reason to consider economics unscientific. Physicists don't know a lot of things about the universe (even some of the most basic questions are still mysteries) - are we going to say physics isn't science? The doctor analogy makes no sense at all. Is she trying to claim medicine isn't science? Also, economics is obviously science in that the models admit predictions that are both verifiable and potentially falsifiable. Maybe you can claim economists don't know much about the world, but that doesn't mean economists aren't scientists. Isaac Newton knew little about how the world worked. But he came up with a simple model of gravitation that explained something very important about the world and had some practical applications. So, should we conclude Newton wasn't a scientist simply because he didn't know a lot?

Also, I think she is just wrong that we don't know anything. Obviously there is a lot economists don't know, as is true of any scientist, but I think macroeconomists know more than she gives credit for. I think they definitely know more about the world than how culture interacts with the economy, her area of study.

Many economists, and non-economists, hate Krugman because not only does he pretend his view of macro is the only relevant view, but he claims that those who disagree with him are either idiots or get pleasure from watching children die in the street. Krugman attempts to moralize economic theory. For him, disagreeing with his views isn't just a matter of scientific disagreement, it's that the dissenters are "the bad guys" or morally deficient in some way. He has a child-like view of the world where everyone is a good guy or bad guy in every matter. That type of behavior is leads to resentment.

Economists are scientists too ! And so is every human being on the planet. Science is conjecture and refutation. Every human action is a scientific experiment. I conjecture getting a law degree will secure me a decent job. I find out if that is true. Bernanke conjectures that buying MBS will prevent total financial collapse. He finds out if it is true.

Well, my taste in short stories runs more toward Alice Munro, though she can make you shiver too. I'll give it a shot though.

Daniel,

I thought I was being clear, but maybe not. What bothers me is:

1. What she is describing (ideologically-driven models with no connection to reality) is what everyone knows is bad economics. This is the kind of sorting we do all the time. Economics can be done well, or it can be done badly. You shouldn't condemn the whole profession because of people who do their jobs poorly, just like I should not condemn the medical profession for one instance of malpractice.

2. To say that we know nothing is silly. To get a perspective on this, talk to any intelligent layperson and see what they can tell you about how the economy works.

3. One of Krugman's sins is his continual attacks on mainstream macroeconomics. This would be fine if he knew what he was talking about, and had something constructive to say, but neither is the case. It would also be fine if Fernandez wanted to defend Krugman by pointing out that he is actually being constructive. But her argument is that Krugman critics are just a hateful bunch. That's part of Krugman's shtick. According to him, if you disagree with him, you must be evil.

You know, she has the humility to say we do not know. And we do not. But as Socrates used to say "I know that I do not know." Apparently you think Raquel can not get away with it, because *you* know.

"Socrates found that men who did know things that he did not know -- and who "to that extent were wiser than I was", also on that basis -- i.e. on the basis that they knew some things -- imagined that they also knew things that they did not know. And so Socrates asked himself "whether I would rather be as I was -- neither wise with their wisdom nor foolish with their foolishness [i.e. their presumption that they know what they do not know] -- or to possess both qualities as they did", and he answered that "it was best for me to be as I was". (ibid. 22d-e)"

Fernandez is full of herself. A lot of economists don't look at the experiences of other countries? The journals are full of this, especially in the growth literature. They don't look at economic history? What are Nunn and Voth doing? I would say the culture area is weaker than the macro area? Is a theory that says if your Mom works then your preferences are such that you don't mind your wife working very deep? What happens when you don't do economics properly. I.e., you rely on the intuition of a genius like Summers. You get stimulus packages that cost $10,000 per household and that don't work. As the late, great Aiyagari said a little but of Stokey, Lucas and Prescott can substitute for a lot of IQ points.

Fernandez should clarify what she means by macroeconomics. Is she talking about the ad hoc models by Gali/Gertler/Sims/Svensson etc? Is she saying that they offer little constructive advice about how to deal with a financial crisis. Without being more concrete, it sounds like she was just sitting on her throne pontificating. She should get back to her own sovereign domain: "reinterpreting" the Doepke and Tertilt model.

I am so glad that Rao said that ( I hope he did anyway)--that's the whole point: the math and the systematization liberate us as a field from waiting for some one-off genius. Instead, we can all be part of a collective knowledge-building exercise that is relentlessly vetted for coherence. The math levels the playing field and does not bar entry, except to someone not interested in making sense.

I had never thought of it that way, but that nails it. Some people think of the technical aspects of what we do as a barrier to entry, but the truth is that it's liberating. You pass out the tools, and then everything becomes so easy.